Public sector ‘mutualisation’ moves ahead

Posted on October 2, 2011 · Posted in Co-operative News

One in six of today’s public servants could be engaged in mutual organisations that run their services on contract to government within four years, according to Cabinet Office minister Francis Maude – architect of the ‘right to provide’ initiative.

“There are six million people who work in the public sector at the moment,” Maude told Public Finance in an interview. “It would be very ambitious, but is not inconceivable, that at the end of the Parliament, 2015, you might have as many as one million workers who would be co-owners in some form of the public entity that they are part of. That would be very exciting.”

Exciting, yes, but other words also come to mind, such as ‘interesting’ – as in the Chinese curse, ‘may you live in interesting times’. Another cliché that might be considered, and directed to the co-operative movement, is ‘be careful what you wish for’.

Any wholesale move towards public service privatisation via mutual organisational structures will put co-operatives uncomfortably near the centre of political debate for the rest of this Parliament. It will be a challenge to prevailing co-operative ideology and loyalties. It will also create very interesting practical difficulties for those people thrown – and this is a reasonably metaphor – into a contrasting organisational structure to that which they are used to. And they will need to adjust in what is a very short timeframe in terms of business creation.

So, too, is the question of which type of mutual would be appropriate to running a public service. Should it be a workers’ co-operative? These might engage staff more fully, but risk a continuation of the culture of ‘provider capture’, in which the interests of workers and managers prevail over those of service users. Or would a consumer co-operative be more appropriate? But, if so, how would this be a mechanism for improving staff engagement?

Is the John Lewis model of employee partnership be better? Or perhaps a multi-stakeholder co-operative system? Yet there is no evidence that government ministers, and their policy advisors, have any knowledge of multi-stakeholder co-ops.

These issues are at the forefront of the thoughts of Ed Mayo, director general of Co-operatives UK and a member of the task force advising government on the right to provide initiative. “It’s quite a fundamental issue, because it deals with the question of what is a mutual, and where are the boundaries,” says Mayo. “I think it’s clearer what a co-op is. ‘Mutual’ is necessarily a more difficult term.” He adds: “We need to go back to principles to consider which is the right model. We have 150 years of learning, which we need to take into account.”

Mayo continues: “Whether this matters particularly depends on whether you are doing privatisation of public services. The coalition government does not see that sharp a difference between mutuals and wider forms of private businesses. There are all sorts of health warnings about this.”

Not the least of these is the concern that services might be handed over to workers to run, in the expectation that many will then fail, and then have to be rescued by a large private sector outsourcing operation. Alternatively, a ‘privatisation mutual’ might never develop the capacity to be genuinely self-governing, ending-up as merely an adjunct of the government, while off its financial accounts. “My concern is that we might programme in failure,” says Mayo.

He adds: “Co-ops UK has been looking at international models. One of the things I am trying to say is the UK movement must grow up. Grow up, because there is not a realistic sense yet of what huge obstacles and barriers there are to overcome if we are to achieve the successful delivery of public services. It’s a tightrope and the movement has lionised the few successful examples where this has happened. Yet the pioneers have had to walk through treacle because there are fundamental barriers to overcome.”

The practical challenges include, not least, the fact that there is no existing infrastructure to support the setting-up and development of public sector mutuals. The financial support in the NHS for the right to provide has been cut. Personal skills and expertise of key staff need to be nurtured – skills involved in managing a unit within a public body can be very different to those needed to run a self-funding mutual. Workers considering conversion will also need advice on tax implications, while the issue of continuity of pensions entitlement is difficult on both a practical and a political level.

One particular reason for Mayo’s anxiety is that most early requests submitted under the right to provide involve initial thoughts, many barely worked up into anything recognisible as a business proposition. Staff may want to get out from under the feet of a despised manager, but it is unclear that many are ready to change the terms of their engagement with their employer and their job – or even that they have thought much about what this involves.

It is not obvious, either, that politicians have gone beyond outline principles in their thinking. Interest has been expressed in the model of Italian social co-operatives to promote social integration and labour market reintegration. Yet this would involve recognition of different legal models, allied with new tax breaks. Does the Treasury really back this?

Nor do we have clarification over tendering processes. Will workers need to bid for their jobs? What if one of the large, very successful and heavily capitalised outsource companies puts in a competing loss-leader bid to run the operation? And what if, after a few years, those companies’ charges for running the services start becoming much higher? Are we really confident that the whole process is not just cover for a mass privatisation of public services?

But if workers do win the right to provide, how will they finance their operations? Any new business needs working capital and it is unclear where a newly formed public service mutual will find this. Would they have a buffer if income dives a few months into operation? And these questions apply not just to small scale new mutuals that might be formed out of a business unit in a government department or county council. Mayo points out that the Post Office, one of the Government’s targets for mutualisation, “is not a viable business”.

The scale of challenge for public service conversion is vastly greater than has been recognised by anyone in the public debate so far, points out Mayo. Ministers must now get real, he hints. “There are risks and barriers,” he explains. “And the cultural barriers in the public sector are so great that there is a need for greater simplicity and working to a set model that can be quality controlled. In my view, if we are serious about it, they will reach this point.”